Document Type

Article

Publication Date

2007

Abstract

We examine the impact on the settlement Wednesday effect in daily fed funds rates following the change from contemporaneous reserve requirements (CRR) to lagged reserve requirements (LRR). The Federal Reserve changed from CRR to LRR, in part, to make it easier for banks to settle their reserve accounts. Our hypothesis is that the switch to LRR will reduce the demand for reserves on settlement Wednesdays, thus reducing the settlement Wednesday effect in fed funds rates. Our empirical results provide strong support for our hypothesis.

Comments

This article was originally published in Journal of Economics and Business 59, no. 2 (2007): 111-129. https://doi.org/10.1016/j.jeconbus.2006.02.002.

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